Rethinking public ownership of capital: A new progressive view

For a long time, the post-war era in the Western world seemed to confirm the optimistic view of reformers that inclusive institutions could be deployed along with markets and entrepreneurship so everybody – at least within national borders – could share in the growing prosperity offered by a capitalist economy. By historical standards, the time from 1950 to the early 1980s brought enormous social achievements to the populations of Western countries: real incomes grew at high rates and became more equally distributed; life expectancy increased and morbidity fell; educational attainments substantially improved; political, social, and civil rights were extended; people’s cultural horizons widened; and society became less violent and more tolerant.

Yet, some scholars such as Thomas Piketty (2014) argue that such improvements, in particular the reduction of income inequality, might only have occurred thanks to historical accidents and transitory circumstances. These include the world wars that preceded the reform era and which triggered a shift of political power to the working class and women; ubiquitous large factories that allowed workers to successfully organise for bargaining purposes; the restrictions that prevented capital from moving easily across national borders in search for higher profits; as well ‘real socialism’ just beyond the Iron Curtain that offered system competition to capitalism.

Since the early 1980s, however, ‘normality’ has resumed in most Western countries. Taxes have become less progressive and are being shifted from capital to labour; private monopolies and cartels are increasingly tolerated; employment protection has been reduced; public education and public health has been losing ground relative to their private counterparts. The fox in the form of the financial industry has also been given free rein in the henhouse of regulation, and generous social assistance has become the prerogative of loss-making but well-connected banks and corporations who were bailed out by governments with taxpayer money.

Empirical findings suggest that capitalism with a human face is not an inherently stable system. In rich economies, the adjusted labour income share has declined by about nine percentage points since the early 1970s (G20, 2015). This would not matter in terms of shared prosperity if the income going to capital would be equally distributed. But in a typical advanced economy, the poorer half of the population only owns 5% of the total private net wealth and receives even less in terms of returns to wealth (ECB, 2016; Fagereng et al., 2016).

Wealth concentration has been increasing: in the United States with the share going to the top 0.1% growing from 8% in the mid-1970s to 22% in 2012 (Saez and Zucman, 2016). Moreover, a large and increasing fraction of this wealth is inherited rather than self-made (Piketty and Zucman, 2014). Within the working class, the lifetime earnings of successive generations are increasingly distributed unequally (Bönke et al., 2015; Guvenen et al., 2017). Today, relatively young workers in the lower part of the distribution face a significant risk of old-age poverty. That ‘capital is back’ is not only a symptom but also a cause of the retreat of the progressive era: an increasing concentration of wealth also increases the incentive and the ability of the super-rich to buy political influence, which in turn can be used to further increase the concentration of economic power.

Are there policy options that could halt such developments and inaugurate a new progressive era? In Corneo (2017), I proposed that an enhanced role of the public ownership of capital is likely to be an essential ingredient of a successful agenda that aims at launching a new progressive era. The intuition for why public ownership of capital may have such a potential is straightforward. First, the decline of the labour share of national income and the concomitant rise of earnings inequality suggest that the distribution of capital incomes has a stronger impact on the distribution of economic welfare than it had in the past. Second, the current modest extent of capital taxation, despite the rise of the capital share, suggests that redistribution should already occur at the level of primary incomes from capital, which becomes possible if a sufficiently large share of the capital stock is in public ownership.

This expert comment further develops the approach. The latter section deals with the critical remark that public capital is not the only policy tool that could reduce inequality, despite the underlying trend in the functional distribution of income. A more standard approach would rely on union wages, the minimum wage, capital taxes, and targeted savings subsidies. These measures are discussed, their limits highlighted, and it is explained why they do not make public ownership of capital redundant.

The distinctive institutions and policies proposed for managing public capital are summarised in the section entitled ‘Continuity and transformation’. Although public ownership is not new, I propose to manage it in a novel fashion; through a governance structure that relies heavily on the stock market. The conclusion articulates the relationship between the stock market and a genuinely progressive political strategy by putting this approach in perspective. The following issues are addressed: How does the proposed governance structure differ from the one that embedded state-owned firms in Western Europe during the progressive post-war era? To which recent developments in public policy is it related? What social and political forces could support such a program and who is likely to oppose it?

Standard policy options

Using a battery of dynamic general equilibrium models, Berg et al. (2017) explored the likely consequences of the ongoing robot revolution on income growth and distribution. The distinctive feature of their models is the introduction of robot capital as an additional production factor that can be accumulated and is substitutive – to some degree – for human labour in some or all tasks. Following an exogenous increase in the level of robot productivity, they find that the labour share in national income will steadily decline over time while real wages will do the same in the first years. Real wages eventually increase in some scenarios, but it may take decades before wage growth materialises. Such disturbing scenarios raise the fundamental issue of how every citizen – not only capitalists and workers who are complementary to the new machines – can share in the economic benefits resulting from advances in robotics and artificial intelligence.

First consider the idea of redistributing from capital to labour, which may occur at the level of primary or secondary incomes. At the level of primary incomes this could be driven by stronger private-sector trade unions and by hikes of the minimum wage in that sector. Trade union membership has been declining in the private sector over the last three decades in most advanced economies; union coverage of wage setting has declined similarly and wage bargaining has increasingly decentralised to the firm level. It is difficult to imagine that these trends could be reversed any time soon. They were caused by lasting structural changes in the economy and an erosion of the social norms and values that prompt individuals to join a trade union (Corneo, 1995; Goerke and Pannenberg, 2005). It would be considered a success if the trade-union decline ended.

In any case, even redressing the bargaining power of unions would not improve the situation of workers in non-unionised firms and sectors. By itself, stronger union bargaining power would deepen the current dual structure of labour markets: higher wages in the unionised sector decrease labour demand in this sector and thus increase the supply of workers to the non-unionised sector, which tends to decrease wages there. If the unionised sector pays higher wages to begin with, this tends to increase wage inequality.

By contrast, minimum wage legislation can also reach non-union workers, although not (directly) the self-employed and those in the shadow economy. Similar to higher union wages, a higher minimum wage translates to some extent into higher prices for consumption goods and reduces the demand of firms for labour. Based on the empirical evidence, it is by no means obvious that a higher minimum wage automatically leads to significantly higher aggregate real earnings of the low-skilled. Clearly meaningful hikes of the minimum wage are highly country-specific and significant improvements can only be expected in places where the minimum wage is currently at a low level.

The second route for a functional redistribution of income is to tax capital and to use the corresponding tax revenue to help worker households. As is well-known, the economic limits to capital taxation stem mainly from its disincentive effects on private saving and investment and the ensuing shift of some of the burden of capital taxation on workers via lower wages and/or higher prices for consumption goods. Stiglitz (2015) gives a recent overview of the main theoretical results. As he notes, capital taxation is also limited by the compliance, assessment, and other administrative costs it causes; these are especially high in the case of a personal wealth tax.

Recent empirical estimates of these effects find that they severely limit the scope for higher capital taxes. Trabandt and Uhlig (2011) found that the current level of capital taxation in advanced economies is close to the maximum of the Laffer curve; a slight increase of tax rates is likely to generate more revenue, but a large increase is likely to lower it. Corresponding to earlier literature, Fuest et al. (2018) and Dwenger et al. (2018) find that about half of the corporate tax is borne by workers, particularly the low-skilled.

The wealthiest households often avoid or evade personal wealth taxes and taxes on wealth returns, for example, by using offshore investment schemes. As an illustration, Alstadsaeter et al. (2017) find that in Scandinavia 3% of personal taxes are evaded on average, but this share raises to 25%-30% in case of the top 0.01% of the wealth distribution.

The inheritance tax might be the only form of capital taxation that can be effective in reducing the concentration of wealth at the top of the distribution without causing much disincentive and evasion effects – possibly because the super-rich keep accumulating wealth mainly to rank higher than their peers rather than to improve the material well-being of their children (Kopczuk, 2013). But it is unlikely that even substantial hikes in the inheritance tax could generate enough revenue to fix the distributive issue. In Germany for example, doubling the revenue of the inheritance tax would generate less than half of a percentage point of gross domestic product (GDP). In sum, the potential contribution of higher capital taxes to finance a new progressive era seems limited, especially so in the absence of an effective global coordination of capital taxation, something which will not occur anytime soon.

Let us consider a different approach that does not aim at redistributing from capital to labour but at making ‘capitalists’ out of workers. I mean this in the narrow sense of encouraging workers to save more to receive higher capital incomes in the future – when, because of the robot revolution, the labour share is likely to be lower than today.

There are many ways to encourage savings, the most popular being the subsidisation of private retirement plans of employees under some conditions. If one assumes rational forward-looking workers, this type of policy makes no sense at all: it causes an efficiency loss (by distorting the relative price of consumption at different dates) and some arbitrary redistribution (from the workers who do not receive the subsidy to those who receive it). If workers make optimal saving decisions, the most sensible policy measure is simply to inform them about the scenarios entailed by the robot revolution. However, behavioural economics has raised several problematic observations about how people save. A survey by Bernheim and Rangel (2005,) as well as Chetty et al. (2014), strongly suggest that many individuals choose sub-optimally low levels of saving, in which case subsidies for saving can be welfare improving under some circumstances.

If one assumes that some employees save too little for retirement in terms of their own ‘long-term well-being’, then the subsidisation of private retirement plans could induce them to save more and increase their long-run well-being despite the higher taxes they would have to pay to finance those subsidies. The problem is that those people should voluntarily take part in a subsidised program, while individuals who are rational and forward-looking cannot be excluded from such programs.

Consequently, such programs may serve the persons for who it is not primarily intended and not those whom we would like to help. If those who save too little because of behavioural problems are overrepresented among the low-skilled and those who optimise are overrepresented among the high-skilled, such subsidies may redistribute from the poor to the rich. The empirical literature corroborates this. Burman et al. (2004) find that in the US about 41% of the households in the top quintile of the income distribution self-select into subsidised retirement saving programs while only 3% of the households in the bottom quintile do. A similar pattern exists in Germany and contributes to explain why the top quintile receives a strongly over proportional share of the subsidies while the bottom quintile hardly benefits from this policy (Corneo et al., 2018).

If voluntary participation entails a regressive effect because of a self-selection bias, one might be tempted to make participation compulsory. But then one would unfairly harm some of the working poor: those who rationally consume their entire current income and have no access to credit to finance their contributions to mandatory retirement plans.

An alleged way out of this is to replace saving subsidies with the public provision of financial education. This instrument would be targeted to the problem at hand (irrational saving behaviour) and would not suffer from the usual incidence problem, such as the subsidy being partially or totally shifted to the suppliers of private retirement plans through higher participation and management fees.

To avoid the same type of self-selection problem as subsidised savings programs, financial education could be made mandatory in the form of compulsory classes on saving and portfolio management starting in elementary school. Pupils would be made aware of the benefits of saving, familiarised with the world of financial markets and intermediaries, and introduced to the basic concepts of consumption smoothing and portfolio diversification. Over time, this would increase the average degree of financial knowledge in the adult population and, hopefully, increase the capital incomes of worker households.

However, Willis (2011) has highlighted the substantial costs in terms of economic resources needed to implement effective programs of financial education and recent empirical studies cast however serious doubts on the efficacy of mass financial education. Grinblatt et al. (2011), Agarwal and Mazumder (2013), and von Gaudecker (2015) find that the binding hurdle for the problem at hand is not financial knowledge but cognitive, especially mathematical, skills. Gaudecker writes: “That the factor measuring financial-numerical skill turns out to be much more important than financial knowledge suggests that increasing the latter would not do much for portfolio outcomes”. Financial education could even backfire by making people excessively self-confident and prompting them to invest in badly chosen risky assets.

Although it is beyond standard economic considerations, we should also be concerned with the cultural implications of financial mass education during the entire school years of people. Over time, such a program, if successful, would certainly have an impact on the values and mentality of the population. One might welcome promoting thrift, but fear that financial mass education would rather foster a lottery mentality – betting to get rich without having to work. This raises questions about concepts of a good life and good society, issues that are clearly important but beyond the scope of this paper.

Who owns the robots? A wealth fund of the citizens and the federal shareholder

Most people, individually, do not want to become little capitalists. Life is too short to be spent running after the stock market. But they would not object to a collective institution that does the job for them. Similar to social security addressing the problem of retirement saving, citizens would benefit from a sovereign wealth fund (SWF) that undertakes and manages financial risk on their behalf.

Al-Hassan et al. (2013), Bernstein et al. (2013) and Clark et al. (2013) have all conducted surveys on existing SWFs. Atkinson (2015) similarly proposed a SWF as an instrument to fight inequality. My proposal could be implemented at the national level or at a multi-country level, such as the eurozone, or at the level of a state in a federation, such as a state in the United States or a province in Canada.

Instead of trying to convince every household to own a robot, an appropriately designed SWF could make all households collectively own the robots. More mundanely, such an institution would manage public wealth on behalf of the whole citizenry by investing it in the world stock market, mainly or completely abroad. The SWF would own a diversified stock portfolio, without achieving control of the participated companies. Its net returns could help alleviate the increase of income inequality and pave the way to a new progressive era.

A transparent technique to achieve this would be to earmark the SWF’s returns to a social dividend. This would be a monthly or quarterly universal transfer payment received by every citizen. It would allow everyone to share in the high rates of return that come with globalisation and automation. Being tied to capital incomes that are predicted to grow more rapidly than labour incomes, it would generate a lasting reduction of inequality. Such an SWF that pays out a social dividend already exists: the one set up in Alaska in the 1970s. Currently, its social dividend amounts to between $1,000 and $2,000 per person per year. For a broad evaluation of this policy, see Goldsmith (2012) and Jones and Marinescu (2018).

There are several fiscal instruments that a government could employ to endow a SWF with sufficient wealth to make a difference. For advanced economies that lack significant natural resources, earmarking revenue from inheritance tax and the proceeds from the emission of additional public debt are likely to be the most promising. As shown in Corneo (2018a) in a dynamic general-equilibrium model with overlapping generations, the combination creates a SWF that rebates its net returns to the household sector in a lump-sum way to generate a Pareto-improvement under mild assumptions. As shown in Corneo (2018b), under further assumptions on risk preferences and the stochastic process underlying stock returns that are common in the literature, the optimal size of such a SWF is between one-third and one-half of GDP. Optimality is based on the expected lifetime utility of a representative worker. The optimal size of the fund results from the usual trade-off between expected gain and its associated risk.

For a country like Germany, taking financing costs into account, the corresponding social dividend would be in a range between €1,000 euros and €1,500 per year. Clearly this amount is insufficient to avoid poverty, but, added to current household incomes, it would reduce the poverty rate by about one-fourth.

Such an institution can also help meet the secular rise in the demand for more personal autonomy by making sabbaticals possible for every citizen. Here is how it would work: upon reaching adulthood, every citizen could have the choice to reinvest their social dividend in a personal account at the SWF, instead of having it paid out every quarter.

Specifically, every adult could choose to open a sabbatical account entailing the commitment to let the social dividend accumulate for a fixed number of years. At the end, the holder would receive the capitalized social dividends, a sum roughly sufficient to finance a sabbatical year. This could be spent to volunteer in the social economy, engage in politics, and pursuing lifelong learning. Employees of medium- and large-size firms and organisations would have a right to return to their former job after leaving for such undertakings. The proposed sabbatical account would meet the same demand for enhanced personal autonomy often expressed by proponents of a guaranteed basic income, but would avoid its pitfalls. More specifically, it avoids those pitfalls concerning finance and fairness, as well as the risky anthropological novelty of granting everybody the option to spend one’s entire life without ever working.

Further, starting at a later age, say 40, every citizen may alternatively choose to reinvest her social dividend in a personal old-age-provision account at the SWF. The lock-in period could last 25 or 30 years. At the end, the accumulated amount would be transformed into an annuity, which the citizen would then receive along with her social dividend. In combination, they would drastically reduce the risk of old-age poverty. For the case of Germany mentioned above, the annuity alone would be in a range between €4,000 and €5,000 per year.

As an ingredient of a new progressive era, such a SWF should be a faithful expression of the aspirations of the citizenry. Besides own purchasing power, citizens are deeply concerned with fundamental values that include environmental sustainability, human rights, and peace. This view of the common good could be acknowledged by subjecting the fund’s investment decisions to ethical requirements: companies that violate the ethical standards would not be eligible for investment. Similar rules have been applied by the Norwegian Government Pension Fund Global. Also known as the Norwegian Oil Fund, it is the world’s largest SWF and has over $1 trillion in assets. Privately managed socially responsible investment funds also exhibit a variety of methods to implement ethical investing (Nofsinger and Varma, 2012; Becchetti et al., 2014).

In this way, this institution would not only be the expression of a collective identity but also an effective device to induce corporations to respect the values of the new progressive era.

Nonetheless, a SWF would not be a safeguard against the subversion of democracy by a wealthy oligarchy. Large corporations and banks, and the lobbies that represent them, are also devices for members of the moneyed elite to coordinate their endeavours and foster their interests in the public debate and the political arena. If the state were only to own a few shares but not exercise any power of control, the moneyed elite could still translate its wealth into political power in a way that fundamentally contradicts the democratic ideals of equality and participation. Therefore, the second stage of the strategy entails the activation of public ownership in selected domestic companies by means of a novel institution that I call federal shareholder (FS).

This institution would obtain access to a portion of the capital of the SWF to acquire selected companies. Typically, these would be publicly-quoted companies that become the target of a hostile takeover by the FS. Hence, they would not be public utilities but companies that compete in global markets. The FS might also create new firms, for example, in markets dominated by oligopolies or cartels. Under the terms of the law on stock corporations, the FS would then exercise leadership in the supervisory boards of those companies through its own personnel. The mission of the FS would be to maximise profits, and the dividends associated with its shares would accrue to the public budget and be earmarked to finance the social dividend – along with the revenue generated by the SWF.

The firms of the FS would display a mixed ownership structure with the FS retaining, as a suggestion, 51% of their capital and the remaining shares held in private ownership. This is crucial to establish an incentive structure that leads the firms in public ownership to maximise profits. The companies of the FS would be quoted in the stock market and the information contained in the movement of share prices would be used to incentivise the managers. Furthermore, private shareholders would put pressure on the management of the firms of the FS to operate as profitably as possible.

To be able to fulfil its mission – profit maximisation under the relevant legal constraints, the FS should be insulated from political pressure exerted by the government of the day. Therefore, it should be endowed with a high degree of political independence, like that enjoyed by central banks like the Bundesbank in Germany.

There would be two major differences in the internal organisation of the companies of the FS as compared to private-capitalistic ones. The first one would be the empowerment of civil society as a monitoring force. To ensure that profit maximisation is good for the economy, it should not be pursued at the expense of the employees or consumers or to the detriment of the natural environment; it should be the result of increased production efficiency and successful innovations.

Regulations designed to protect employees, consumers, and the environment to internalise externalities and enforce fair market competition should be enforced with respect to both public and private firms. But those under the control of the FS should be subject to additional checks by consumer protection agencies, environmental associations, and trade unions. A law would grant those organisations access to the information about the behaviour of those firms to effectively assess their compliance with regulatory norms.

The second major difference would be the empowerment of the employees in the firms under the control of the FS. Its staff in the supervisory boards would revive the role of works councils and co-determination institutions and, at the same time, foster a sense of identification of the employees with the FS – the institution embodying the endeavour of the polity to get rid of capitalist dominance. Since the extent of worker participation in capitalist firms is inefficiently small (see Freeman and Lazear (1995)), once one of them is acquired by the FS, productivity could be increased thanks to greater worker involvement.

At the same time, public ownership would make employees identify more closely with the company they work for. Since this reduces the share of marginal surplus demanded by the employees in wage negotiations, granting more co-determination should push up both wages and profits. Therefore, the requirement that the FS place special emphasis in promoting worker participation is not an additional goal of that institution but the distinctive channel through which it attains the goal of profit maximisation. One by which the public-democratic firms of the FS may be able to outperform the capitalist firms. The extent to which this comes true would determine the relative importance of the role of active public ownership in the sector of large-scale firms. The more profitable the firms of the FS are, the faster the rise of democratic public ownership, and the stronger the retreat of capitalist dominance.

Continuity and transformation

Enhancing the role of public ownership of capital through an ethical citizens’ wealth fund and the federal shareholder would help launch a new progressive era in advanced economies. Both institutions are to reconcile efficiency and democratic participation in the management of public capital, and both would do it by exploiting the opportunities offered by the (world) stock market. In this, they are to employ one of capitalists’ most powerful weapons precisely to challenge capitalist dominance. Improbable as this may sound, social progress rarely results from the reinstatement of some mythical past or the invention from scratch of completely new institutions. Rather, it usually stems from recognising that organisational forms that have developed into highly sophisticated and influential ones to the advantage of the few can be developed further to advance social goals.

One of the earliest examples of this is the montes pietatis (charitable pawnshops) in Italy, developed in the mid-15th century. This social innovation was inspired by the development of banks that especially thrived in market cities like Genoa and Venice. Banks were among the most sophisticated organisations brought about by the commercial capitalism of the time and benefited the richest layer of society. While inspired by them, the montes pietatis served the interests of the bulk of the population by lowering the risk of extreme poverty (Bruni and Zamagni, 2007). In this sense, there is nothing peculiar in putting the stock market in the service of the whole citizenry instead of just a small minority.

There is another element of continuity shared by both the ethical SWF and the FS: both being democratically legitimate independent agencies. During the last few decades, a growing extent of public decision-making has been delegated to independent agencies like central banks, competition authorities, and regulatory bodies concerned with environmental protection, drugs control, and various services of public interest (Tucker, 2018). Polities deemed the establishment of such independent agencies desirable because of the complexity of the problems to be tackled, the existence of a broad consensus on the long-run goals to be pursued, and the acknowledgment of the deficits of the traditional way of addressing those problems by relying exclusively on executive, judicial, and legislative power.

These observations also apply to the problem of managing capital in public ownership, so that it is natural to conceive the ethical SWF and the FS as independent public agencies. Yet, these could be made much more permeable to civil society than existing independent agencies by introducing clearly defined participatory rights for the citizens. These would stem from the democratic definition of the ethical code for the investments of the SWF and through the role as watchdog played by civil society in the firms of the FS.

Those rights would unleash a progressive momentum upon those institutions and minimise the twin dangers of capture by private interests and technocratic paternalism. So, the ethical SWF and the FS not only incorporate one of the most sophisticated development of institution building in advanced economies over the last decades, but also substantially transform it into a progressive achievement.

Reliance on the stock market and political independence sharply distinguish the governance of public capital sketched above from the traditional way of administering state-owned firms. In many European countries, after the Second World War and until the privatisation wave that started in the United Kingdom in the 1980s, a significant share of the domestic industry in large firms was in state ownership. While some experiences with state-owned firms were positive and some of them continue today, as a whole the traditional way to manage public ownership proved to be ill-suited for the control of a large fraction of that sector of the economy.

In those decades, state-owned firms typically were either part of the government or legally autonomous entities owned by a ministry and under its control. In either case, they were exposed to a high risk of cronyism. Often top managers of state-owned firms colluded with powerful actors in the government to get bail-outs, protection from competitors, or personal favours in exchange for managerial decisions that accommodated the whims of politicians; pervasive and lasting major inefficiencies were the consequence. This proposal tries to take stock of those experiences. It exploits the fact that stock markets have developed significantly and we have access to a substantial record of experience with independent agencies. Putting this new knowledge to good use can help us avoid repeating the mistakes of the past.

The suggested governance of public capital through an ethical SWF and the FS is grounded on democratic participation and is designed to limit inequality among the members of the community. As such, these institutions appeal to widely shared humanistic values, especially stressed by the civil-economy paradigm, republicanism, and libertarian socialism. However, the prominent role the proposal assigns to the stock market is likely to require a careful justification even in circles that approve of the goals pursued by those institutions. In those circles people often mechanically associate the stock market with the casino capitalism that manifested itself in the wake of the last financial crisis – although the crisis originated in very different financial markets. One should plainly explain the instrumental value of the stock market for reaching the goals of a new progressive era, acknowledging its limits and the need for clever and careful regulation.

Conclusion

As compellingly argued by Atkinson in his last book, Inequality: What Can Be Done? (2015), there is nothing inevitable in the increasing polarisation that currently affects many advanced economies. Furthermore, successful policy responses are likely to include several building blocks, each one tailored to the resources and preferences of the specific community to which it is directed. One of these building blocks is likely to be a rejuvenation of the role played by public ownership of capital. In this paper, I have sketched a novel kind of governance structure for managing public capital that ranks high according to the criteria of efficiency and democratic control. It exploits the allocative functions of the stock market and independent public agencies, altogether transforming these institutions with respect to both their processes (by introducing citizens’ participatory rights) and outcomes (by implementing an equal share in the returns earned by public capital).

Not everybody may welcome plans of this type. A SWF that invests in the world stock market will induce financial disintermediation: some households that currently use the financial industry to invest in stocks may find it optimal to offset their share of collective risk taking though the SWF by reducing, possibly to zero, the amount of risky assets in their private portfolios. The financial services sector, especially asset managers, will not be amused. Similarly, capitalist dynasties that use ownership chains to control enormous conglomerates will not happily greet the challenge to their power coming from the FS. But the bulk of society would find that those novel institutions effectively promote its long-run interests.

Yet, several political difficulties are bound to arise. Maybe the most serious is the difficulty stemming from the short-termism of most professional politicians. Creating a stock of public capital of the order of one-third of GDP – by earmarking new public debt and the revenue from the inheritance tax – must be a gradual process, likely taking as long as two decades or more. Even in places where such an accumulation period could be shortened by selling other assets currently in public ownership (such as public housing and gold reserves), it is unlikely that sizable results in terms of a social dividend could be obtained before a decade is over. In democracies, politicians’ decision horizons typically end when the next election is due, and this is much earlier than in a decade. Only politicians who are in a strong position and/or are dedicated to the long-run interests of the bulk of the population may be ready to endorse such a long-term plan.

Professor of Public Finance and Social Policy, Free University of Berlin, DE

Giacomo Corneo is Professor of Public Finance and Social Policy at the Free University of Berlin. He studied economics at Universitá Bocconi in Milan, received a Ph.D. from the European Doctoral Program in Quantitative Economics and got Habilitation at the University of Bonn. He taught at ENPC in Paris, at the University of Bonn, and the University of Osnabrück. He served as senior advisor at Ministère de l'Economie et des Finances in Paris.
He has been managing editor of the Journal of Economics since 2004. He is co-editor of Perspektiven der Wirtschaftspolitik and serves as associate editor of the International Review of Economics and the Annals of Public and Cooperative Economics. He is Research Fellow of CEPR, London, CESifo, Munich, IMK, Düsseldorf, and IZA, Bonn. Professor Corneo has published several works in the fields of public economics, labour economics, comparative economics, industrial organisation, and growth theory. His papers appear in various periodicals, including American Economic Review, Journal of Public Economics, International Economic Review, European Economic Review, Journal of Labor Economics. He has written three books, the latest, 'Is Capitalism Obsolete?', was translated in various languages. His research interests include inequality and redistribution, public finance, and the economics of values and norms. He is the director of the Ph.D. program 'Public Economics and Inequality'.